Business Ethics, Governance & Risk

Answer 1.
A case of practice of ethical Leadership by the CEO of Starbucks

Introduction to the company

First Starbucks opened in 1971. Back then the company was a single store in Seattle’s
historic Pike Place Market with just a narrow store front. Starbucks offered some of the
world’s finest fresh-roasted whole bean coffees. In 1981, Howard Schultz (Starbucks
chairman and chief executive officer) had first walked into a Starbucks store. From his first
cup of Sumatra, Howard was drawn into Starbucks and joined a year later. In 1983, Howard
travelled to Italy and became captivated with Italian coffee bars and the romance of the
coffee experience. He had a vision to bring the Italian coffeehouse tradition back to the
United States and make the Starbucks a place for conversation and a sense of community or
say it a third place between work and home. He left Starbucks for a short period of time to
start his own Il Giornale coffeehouses and returned in August 1987 to purchase Starbucks
with the help of local investors.

On 1st December 2016, Howard Schultz resigned as CEO and Kevin Johnson became the
CEO as on 3rd April 2017.

Their only mission was to inspire and nurture the human spirit by delivering “one person, one
cup, and one neighbourhood at a time”.

Ethics and Compliances

Believes that conducting the business ethically and striving to do the right thing are vital to
the success of the company.

Believes conducting business with integrity by providing resources that help partners to make
ethical decisions at work.

Case Scenario
The case consists of an ethical dilemma related to the leadership test faced by the CEO of
Starbucks, Kevin Johnson. The dilemma arose when two black men were arrested in a
Philadelphia Starbucks. These men were actually waiting to meet a business associate at the
Starbucks store, but they didn’t purchase anything while they were waiting for hours at the
store. Watching this the store manager asked these two black men to leave, but since they
already waited for quite some time for the meeting to happen they refused, explaining that
they were there to meet someone. The manager immediately called the police because the
men refused to leave, and the police arrested them.

While this whole scenario was happening, another patron at Starbucks was recording the
entire arrest on her cell phone and posted that on social media which quickly went viral. After
the arrest the woman who took the video in an interview mentioned that she had been sitting
at the same store for a while and she didn’t order anything but she wasn’t asked to leave even
though.  Additionally, in the video which went viral the business associate of the black men
showed up during the arrest, and he asked the manager and the police what the two men had
done wrong.

While this scene happened the general public and those who witnessed the arrest labelled it as
discriminatory and racist. The arrests also led to the protests and sit ins at the Philadelphia
Starbucks the days following the event.

Here the CEO, Johnson had to take a decision and soon a statement occurred stating that the
manager of Philadelphia Starbucks no longer worked at the store. Also, Johnson provided an
apology statement shortly after the arrest, saying, “The video shot by the customers is very
hard to watch and the actions in it are not representative of our Starbucks Mission and
Values. Creating an environment that is both safe and welcoming for everyone is paramount
for every store. Regretfully, our practices and training led to a bad outcome—the basis for the
call to the Philadelphia police department was wrong.”

Establishing the facts

This case was an interesting issue because it became controversial due to the action made by
the store manager of Starbucks located in Philadelphia. Johnson said, that our every store
seeks to create a culture of warmth and belonging where everyone is welcomed as and when
they want. But in context to the action done by the store manager, he felt that it was not
followed and went viral as the policemen got involved which made it more an enormous
concern. Also, one of the customers had a video clip on what really happened that day and
posted it on the social media.

The consequence of this was that they had to close 8,000 odd stores to conduct unconscious
bias training for their employees. The CEO admitted that their employees needed more
training, including about when to call authorities, and that the company needed to conduct a
thorough analysis of the practices that lead to the said incident.

After this issue of the Starbucks, it released a new policy called “Use of Third Place Policy”,
which stated, “We want our stores to be the third place, a warm and welcoming environment
where customers can gather and connect. Any customer is welcome to use Starbucks spaces,
including our restrooms, cafes and patios, regardless of whether they make a purchase.”

Identifying the ethical issues

Firstly, here the main ethical issue that company faced was the commitment in their core
ethical values which was to provide quality services to customer by welcoming them to
gather and connect while utilising their space.

Secondly, conducive workplace environment for the partners. Due to this incident the
company was forced to be called as discriminative and racist because they asked those black
men to leave and not the woman who was in the same scenario, at the store.

Thirdly, emphasis on integrity and fairness on all dealings. The CEO had to take a quick
decision in regard of the case to regain the faith and loyalty of the customers.

Explaining the alternatives and practical constraints

In order to take an ethical decision the partner could have called the main office for guidance
and in practicality there could have been a 24 hours helpline service of ethics and conduct to
handle such ethical issues.

Also the company could have set up a structured standard code of behaviour to modify the
behaviour of its partners in such situations.

These alternatives could have been practiced to deal with the ethical issue faced by the
manager. The strong decision maker in such short situations can be conducted by the ethics
and values that are followed by an individual.

Identifying the primary stakeholders

The primary stakeholders of the company were its customers. It is very important for a
company to have commitment to provide a quality service to its customers. This is because it
will help the company to increase the satisfaction of customers towards the company. The
quality service provided will act as Starbucks’s competitive advantage to create loyal
customers.
Secondary are employees whose performance will depend upon the kind of working
environment. The working environment will create a behavioural patterns in human
development and will have both physical and psychological influences on employees in the
company.

Deciding appropriate actions

Some suggestions on how the company can further improve practising ethics in Starbucks
are:

First suggestion is that Starbucks should use ethical screening for job applicants during
interview. Ethical screening is the process of checking the job applicants against certain
moral standards and removing those who do not conform. This practice can be done by
checking the resumes of those applicants which contain the behavioural information that
reflects the attitude of the applicants. The interviewers should also interview them upon
situations about how they managed the ethical issues faced by them at their previous
workplace and how they are going to solve the ethical problems cases when they face them in
the future. Besides, they should also make sure the applicants share the same ethical values
with the company and will maintain them on the job. This can further prevent one unethical
employee to have a bad influence on others in the company that may ruin the good image of
an ethical company.

Second suggestion could be that Starbucks can expose their new employees to the company’s
code of ethics, code of conducts and ethical decision making process during the orientation to
improve the ethics in the company. The company’s codes of ethics and conducts act as its
conscience and provide a common ethical reference point for employees. By reviewing these
conducts, employees will know about what they should do and what they should not do in the
company. Through this they will also know whether the issues that can appear in the future
are considered ethical or not ethical according to the company’s code of ethics and code of
conducts and solve it with the best and necessary solution.

Conclusion
Starbucks is one of the most ethical companies in the world and is proud of its ethical ways
such as community, sourcing, environment, diversity and wellness in doing their business.
The company has openly displayed its commitment to being social responsibility. The
program of Business Ethics and Compliance is to support their mission and help to protect
their culture and reputation. Starbucks has emphasised their employees into three sectors
which is global human rights, equal employment opportunity and health care.

In Starbucks, they are using three principles in workplace ethics. First is utilitarianism, which
can be divided into two types that are act-utilitarianism and rule-utilitarianism. Second is
distributive justice which means sharing of the benefits and burdens of our lives among
people. Third are rights, rights play a central role in ethics and it is important to ensure that
the freedom and well-being of each individual will be protected when others threaten that
freedom or well-being.

There are 3 key principles in Starbucks:

1. Ethical sourcing of coffee

2. Our partner
3. Ethical environmental resources.

Here the main ethical issue addressed in Starbucks’s code of conduct for its partners can be
categorised as commitment of partners to provide quality service to customers, create a
workplace environment which is conducive for the partners and emphasis on integrity and
fairness on all dealings.

After the study for above case, I personally found that there are many ethical practices
practiced by employers as well as employees in Starbucks. The only method Starbucks
should use is ethical screening for job applicants during interview. Besides this method,
Starbucks can also improve ethics in the company by providing ethics training workshops for
all employees annually to supplement ethics codes.

Moreover, Starbucks also needs to strengthen the ethics which are individual rights and
distributive justice of the work unit by rewarding those employees with ethical behaviours
equally and punish those with unethical behaviours through work goals and performance
appraisals.

Last but not least, Starbucks should model appropriate behaviours in themselves as they are
actually the most important ethics reference point for the employees.

Referencing
1. https://www.scu.edu/ethics/
2. https://www.starbucks.com/
Answer 2.
Research the Kingfisher Airlines

Introduction
Kingfisher Airlines was a major airline group based in Mumbai, India. Kingfisher Airlines is
the fifth biggest passenger airline that provides primarily international as well as national,
long and short haul, medium to high fare and high frequency services (Carroll, 2013). Being
one of the major airline organizations, it has faced several ethical issues due to several
wrongdoings taken place in the organization. Kingfisher was the most to suffer amongst
several other Indian carriers due to the occurrence of those unethical issues in the
organization.

Ethics and Compliance

The lack of delegation is the prime and primary reason (Boettcher et al. 2014). The
Kingfisher airline has been crash landing as of a trouble with the random changes made in the
direction and strategy as well as the absenteeism of no ling term MD or CEO.

1. Deteriorating in his fiduciary duty to shareholders, personnel, and stockholders: An

administrator of a company is expected to always put the interests of the organisation
and all the people involved with it above his own personal interests. He is expected to
have transparency with shareholders, employees and investors. Any kind of conflict
of interest, such as earning a secret profit, unknown/undisclosed business dealings
show disloyalty on the part of the administrator.
a. The director of Kingfisher Airlines, Vijay Mallya was adopted practices for
his own gains and were against company ethics.
b. Kingfisher airlines did not generate profits for 8 years.
c. Malaya didn’t take any required action as a leader to stop operations in spite of
making only losses and allowed investors and consumers to be under the
illusion the airline was functioning as it should be.
d. Failing to pay the salaries of employees. When asked about this, Vijay Mallya
made statements about going under debts due to reported losses.
e. In 2013, Diageo acquired a 27% stake in United Spirits Limited for Rs.6,500
crores (US$902 million). Despite the sale of share company did not pay to a
single lender or employee.
f. Personal Benefit -There was rumours that Mallya had his own agenda and
invested the money in his IPL (Indian Premier League) cricket team.
Alongside a lot of the fund was released for his ostentatious birthday bash
which featured renowned singer Enrique Iglesias.
g. Above are clear example of violating fiduciary duties and against the company
compliance.
 2. Non-Disclosure of Non-Compete Clause 
a. A probe by the Serious Fraud Investigation Office (SFIO) in India found that
corporate ethics were compromised in the merger between Kingfisher Airlines
and Deccan Aviation Limited.
b. Kingfisher Airlines had created three new departments in the airline to avoid
paying capital gains tax.
c. In addition, a non-compete fee of Rs.30 Crores (US$4 million) was paid to the
owner of Deccan Aviation, Captain Gopinath, which was not disclosed to
shareholders.
d. Transparency is vital in a listed business. Full disclosure of information must
be provided to the shareholders, so they can make informed decisions.
e. Any kind of non-disclosure of important details points to the dishonesty of the
company director and shows how little he cares about his shareholders
3. Non-Disclosure of Non-Compete Clause
a. A probe by the Serious Fraud Investigation Office (SFIO) in India found that
corporate ethics were compromised in the merger between Kingfisher Airlines
and Deccan Aviation Limited.
b. Kingfisher Airlines had created three new departments in the airline to avoid
paying capital gains tax.
c. In addition, a non-compete fee of Rs.30 Crores (US$4 million) was paid to the
owner of Deccan Aviation, Captain Gopinath, which was not disclosed to
shareholders.
d. Transparency is vital in a listed business. Full disclosure of information must
be provided to the shareholders, so they can make informed decisions.
e. Any kind of non-disclosure of important details points to the dishonesty of the
company director and shows how little he cares about his shareholders
4. The in-flight interruption is another important unethical issue of Kingfisher Airlines.
Flights are relative boring in comparison with the other transport like rail (Carroll,
2013). However, most of the passengers of the domestic flights are not looking
forward to the in-flight entertainment (Boettcher et al. 2014). The in-flight
entertainment can become usable only for the passengers on the international flights.
5. Unfair fares of flights are also major unethical issue. While KFA offered truly a
luxury and premium service it has taken pride in calling itself as a budget airline
(Carroll 2013). They have refrained them from calling themselves a Low-cost-carrier
because its fare were higher that the LCCs.
Dr. Mallya amongst these all forgot that he was doing their operations in a business where the
taxes are discretionary and costs for fuel are variable. Moreover, the high-blitz advertising
costs incorporating the contract with Ms Padukone, has resulted in an extra-ordinary lounges
at the expensive and expansive frills, tele-booking centers, government cuisine and airports.
According to Vijay Mallya, the chairman of Kingfisher Airlines, he does not take things
personally. However, probably, it is one reason why the Kingfisher airlines disaster.

Case Scenario
In March 2016, Indian liquor baron Vijay Mallya (Mallya) fled to Britain after a consortium
of 17 banks pulled the plug on him in a bid to retrieve nearly Rs.70 billion in unpaid loans.
Non-bailable arrest warrants were issued against him by separate courts for money laundering
and financial mismanagement. As of June 2016, Mallya did not return to India though the
Indian government sought his deportation after revoking his passport. The UK government
said it would not be able to deport Mallya under its laws and asked the Indian government to
seek his extradition instead. However, Mallya clarified that he was willing to return to India
and settle the loans, provided he was assured of a fair trial. He accused the Indian media of
conducting a “witch hunt” against him.

Conclusion
Several unethical means of the Kingfisher Airlines have been analysed. As of now,
Kingfisher Airlines is officially out of funds and on the other hand unofficially bankrupt. The
only wrong thing was done by this airlines organization is that Kingfisher airlines have
completely entertained several unethical issues. Being a major and popular organization,
Kingfisher Airlines should not allow any disloyalty to the passengers. In future, it may
happen that the organization would lose their existence due to all these consequences.
Therefore, these problems or the issues have become the major reason for this pathetic
condition of the company.

References
a. Carroll, A. B. (2013). Business ethics: Brief readings on vital topics. Routledge.
b. Boettcher, J., Cavanagh, G., & Xu, M. (2014). Ethical Issues that arise in Bankruptcy.
Business and Society Review, 119(4), 473-496.

Answer 3. a)
“Excessive modern day consumerism is unethical for the planet and for society”

Introduction:
The term ‘consumerism’ was first coined by businessmen in the mid-1960s as they thought
consumer movement as another “ism” like socialism and communism threatening capitalism.
Consumerism is defined as social force designed to protect consumer interests in the
marketplace by organising consumer pressures on business. Consumerism is a protest of
consumers against unfair business practices and business injustices.
It aims to remove those injustices, and eliminate those unfair marketing practices, e.g.,
misbranding, spurious products, unsafe products, planned obsolescence, adulteration,
fictitious pricing, price collusion, deceptive packaging, false and misleading advertisements,
defective warranties, hoarding, profiteering, black marketing, short weights and measures,
etc.”

Consumer organisations could provide united and organised efforts to fight against unfair
marketing practices and to secure consumer protection. The balance of power in the
marketplace usually lies with the seller. Consumerism is society’s attempt to redress this
imbalance in the exchange transactions between sellers and buyers.

Consumerism challenges four important premises of the marketing concept-

1.) It is assumed that consumers know their needs.

2.) It is assumed that business really cares about those needs and knows exactly how to find
about them.

3.) It is assumed that business does provide useful information that precisely matches product
to needs.

4.) It is presumed that products and services really fulfil customer expectations as well as
business promises.

Areas of Basic Rights of Consumers:

Consumers have “rights” which are important for all marketers to appreciate. Recently the
UK government has encouraged the development of a citizen’s charter which includes a
“Patient’s charter” for the National Health Service, a passenger’s charter for rail travellers,
and various other customer-focused initiatives.

The real awakening of consumerism was in the USA. Before Nader’s book, President
Kennedy highlighted the obligation on an organisation owes to its customers in his
“Consumer Bill of Rights”.

This encompassed four main areas that should be basic rights for all consumers:

(1) The right to safety

(2) The right to be informed

(3) The right to choose

(4) The right to be heard.

The idea of rights can be traced back to the “inalienable rights” included in the US
Declaration of Independence by Thomas Jefferson. The marketing profession of today must
be aware of these rights and combine them where possible in any marketing plans for
products and services. They form a good framework for considerations.

(1) The Right to Safety:

When a purchase is made, the consumer has the right to expect that it is safe to use. The
product should be able to perform as promised and should not have false or misleading
guarantees. This “right” is in fact a minefield for the marketing profession. Products which
were at one time regarded as safe for use or consumption have subsequently been found by
modern research not to be so.

There was a time when cigarettes were regarded as not being harmful to health, sugar in
foods was not highlighted in television advertising as being bad for teeth, and the public were
advised to “go to work on an egg”- in retrospect, was it safe to do so? Other examples are to
be found in the medical field, such as the Thalidomide drug which caused deformity to
children born to mothers who took his prescribed drug.

Legislation which highlights “Products liability” has been introduced in several countries.
This has forced suppliers to consider their responsibility. But should companies go further in
a positive rather than a negative way? It could be said that this right will be closely linked to
legislation and it is obvious that this right will be closely linked to legislation and it is
obvious that marketers who fail to protect consumers do so at their peril.

(2) The Right to be informed:

The right to be informed has far-reaching consequences – it encompasses false or misleading
advertising, insufficient information about ingredients in products, insufficient information
on product use and operating instructions, and information which is deceptive about pricing
or credit terms. But this adopts a negative approach. Avoiding trouble is not sufficient.

Any market should take advantage of every opportunity to communicate with consumers and
to inform them about the benefits and features of the product offered. It should be no
protection to claim that consumers fail to read instructions. Marketers must ensure fully
effective communications between consumer and supplier.
But this ‘right’ determines that customers should be given adequate information in order to
implement the next right-the right to choose.

(3) The Right to Choose:

The consumer has the right to choose and, of course, marketing does try to influence that
choice. But, in most western markets competition is encouraged and products should not
confuse consumers.

As an example, it has been suggested that to make this right easier to attain, packaging should
be changed so that similar products from different firms are packaged in exactly the same
quantities, or at least use both metric and imperial weights/ measures and so make value
comparisons easier for the customer.

In fact, Sainsbury provide this comparative information on shelf tickets, but Tesco do not.
The unanswered question remains – Do consumers use this information in making choices, or
do they use other criteria?

(4) The Right to be Heard:

The right of free speech is present in all western countries. However, do organisations listen
to consumers? In a well-focused marketing organisation such feedback should be encouraged,
and it should be treated as a key input for the future. This right allows consumers to express
their views after a purchase, especially if it is not satisfactory. When anything goes wrong
with a purchase the customer should expect that any complaint should be fairly and speedily
dealt with.

Consumer Protection
Protection of consumers is necessary because an average consumer is less informed and less
powerful than the seller. Both voluntary measures and law can be used to protect consumers.

Anyone who buys goods and avails services for his/her use is a consumer. Any user of such
goods and services with the permission of the buyer is also a consumer. Government of India
has enacted more than thirty laws to improve the lot of the consumers.

Some of these are — The Contract Act 1882, The Sale of Goods Act 1930, The Laws of
Torts, The Essential Commodities Act 1955, Tine Prevention of Food Adulteration Act 1954,
The Standards and Weights of Measures Act 1976, The Monopolies and Restrictive Trade
Practices (MRTP) Act 1969, Agriculture Produce (Grading and Marketing) Act 1937 and the
Consumer Protection Act 1986.
Despite the plethora of laws and rules, the status of consumers in India remains deplorable.
There are several loopholes in many laws. The implementation of many laws has been tardy
and faulty. The enforcement machinery is lethargic and corrupt.

Consumers are ignorant of the rights and remedies available to them under different laws.
Even if a consumer is aware of these laws, he does not go to the courts due to complicated,
time-consuming and expensive legal procedures.

In the absence of strong consumer movement, legislation has failed to improve the lot of the
consumers. Further, the various laws provide no direct relief to the consumer as the focus is
on punishment to persons violating the laws.

The Consumer Protection Act, 1986 was enacted for better protection of consumers’ interests.
It provides effective safeguards to consumers against defective goods, unsatisfactory services,
unfair trade practices and other forms of exploitation.

The law lays down a time frame for disposal of cases. It provides for simple, speedy and
inexpensive redressal of grievances because no fee or other charges have to be incurred by a
consumer. He can make a complaint on a simple paper without any legal or stamp paper.

Unlike other laws, which are punitive or preventive in nature, this law is compensatory in
nature. It provides for three tier machinery consisting of the District Forum, State
Commissions and National Commission.

The law also provides for formation of Consumer Protection Councils. These Councils are
expected to promote the cause of consumer protection in every State of India through
education.

It covers six consumer rights:

1. Right to safety,
2. Right to be informed,
3. Right to choose,
4. Right to be heard,
5. Right to redress, and
6. Right to consumer education.

After an amendment in 1993, the scope of the Act has been widened to include paid services
like medical services rendered for a charge.
The Act applies to all goods and services unless specifically exempted by the Central
Government. It cover- all sectors whether private, public or cooperative. The provisions of
this Act are in addition to and not in derogation of the provisions of any other Act.State
Commission is set up by the State Government and its jurisdiction is restricted to the
boundaries of the State concerned.

(i) The State Commission shall consist of a President, who either is or has been a
Judge of a High Court, and two other members. All the three shall be appointed by the
State Government.

(ii) Only those complaints can be filed where the value of goods/services and
compensation claimed is between Rupees twenty lakhs and one crore. Appeals against
the orders of any District Forum can also be filed before the State Commission.

(iii) The State Commission, after being satisfied that the goods were defective, can
issue an order directing the opposite party to either remove the defect or replace the
goods or return the price paid or pay compensation to the consumer for loss or injury,

CONCLUSION:
As discussed in this conceptual paper, it could be stated that consumerism is central to current
forms of globalization as well as consumerism is fundamental to understanding globalization
and the modern world. This connection could be grasped in the fact that globalization enables
access to resources as well as markets globally. Furthermore to this argument, it could be
asserted that the emergence of consumerism parallels the emergence of free market. The
globalization led consumerism in its nature creates two important issues which could be taken
into debate which are; the patterns and effects which exacerbates inequalities and the
unsustainable consumption and depletion of the environmental resources. Market-led
globalization creates an unequal distribution of wealth through the patterns and effects which
are; structural positioning of countries in the global economic system, competition that occurs
due to open market, moving of manufacturing and processing operations to lesser developed
countries and income distribution. The connection between environmental degradation and
globalization and consumerism could be established taking into consideration the many
factors via; link of globalization and consumerism with the exportation of technologies and
activities that can have detrimental effects on the ecosphere, link of globalization and
consumerism with the increased levels of commodity exportation, link of globalization and
consumerism with encouragement of consumption and creation of artificial needs, link of
globalization and consumerism with the spread of factories worldwide on one hand which
had made more infrastructure necessary and on Globalization, Mobility, Identity, and
Consumerism..51 the other hand which emit environmentally damaging substances to the
ecosphere, link of globalization and consumerism with the overuse of global resources
disregarding natural cycles, disregarding traditional practices over more sophisticated
markets, deforestation leading to habitat denial and extinction of species and genetic
engineering. It was believed that globalization and mobility will bring about new
opportunities for the developing economies, the fruits of which will percolate down to the
bottom of the society. But what has really happened is far from satisfactory.

Even when some developing countries managed to grab 2068 the opportunities of
globalization in terms of growth of the national economy, globalization has some major
socio-economic implications on the developing societies apart from economic growth. For
example, it has perpetuated consumerism which has not spared even the poorer section of the
working population. The consequence has not been good for the hapless working children.
The theoretical level analysis of this paper explains the positive linkage that exists between
consumerism and the incidence of child labour in a globalizing developing economy.
However, more empirical research to examine the existence of this crucial linkage is urgently
needed.

REFERENCES:
1) Aimaq, Jasmine. 2003. Review of Peter N Stearns, Consumerism in World History: The
Global Transformation of Desire." EH.Net Economic History Services. http://eh.net/ book
reviews /library/0569

2. Niello, J.V., 2003. The Impact of Globalization on Consumerism. Paper presented at the
Consumers International, Latin America and Caribbean Office, 2003

3. Hurrel, A., Woods, N. 2000. Globalization and Inequality in The New Political Economy
of Globalization, Richard Higgott, Cheltenham, UK.

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